Shareholders rights and remedies Flashcards
S.33 CA 2006
Members can use under s.33 if their membership rights are infringed
Usual remedy: damages
Membership rights
right to a dividend once it has been lawfully declared;
right to share in surplus capital on a winding up;
right to vote at meetings; and
right to receive notice of GMs and AGMs.
Rights of members which are not membership rights are not enforceable under s 33
Shareholders agreement - how to amend it?
unanimous approval
Shareholders agreement
A Shareholders’ Agreement is a contract between some or all of the shareholders, in which they can agree between themselves how to regulate the affairs of their company.
Personal contract
SA can be kept private
Members can enforce provisions of the SA directly against another (using contract principles)
What resolution is needed to remove a director ?
What notice is needed to remove a director?
ordinary resolution
special notice 28 clear days of a removal resolution
Is it possible to use a written resolution to remove a director?
NO
What should the board do if they place the removal resolution on the GM’s agenda?
the board will need to give shareholders at least 14 clear days’ notice of the removal resolution
Can instead be given by an advertisement in a newspaper or any other mode allowed in AA at least 14 clear days before the GM
What can shareholders do if the directors do not place the removal resolution in the GM’s agenda?
the board will need to give shareholders at least 14 clear days’ notice of the removal resolution
Can instead be given by an advertisement in a newspaper or any other mode allowed in AA at least 14 clear days before the GM
A s 303 request must state the general nature of the business which the shareholders wish to be dealt with at the GM and may include the text of the resolution they want proposed at the GM
What must director’s do on receipt of s.303 request?
a) within 21 days from the date on which they become subject to the s 303 request to call the GM; and
b) to be held on a date not more than 28 days after the date of the notice convening (ie calling) the GM.
What happens when directors fail to call a GM to remove a director after s.303 request?
If the directors fail to call a GM under s 304(1) CA 2006, all of the shareholders who submitted the s 303 request or any of them representing more than one half of the voting rights of those who submitted that s 303 request, can call a GM themselves pursuant to s 305 CA 2006.
If the shareholders call the GM themselves then that GM must be called on no fewer than 14 clear days’ notice and held within 3 months of the date that the directors received the s 303 request .
Does the board need to notify the director of their proposed removal?
YES
If a company receives notice that one or more members intends to propose a removal resolution, the company must immediately send a copy of the notice to the director concerned (s 169(1) CA 2006). Note that even if the Board decides not to put the removal resolution on the agenda of a GM, it is obliged to send the special notice to the director concerned.
What are director’s rights to protest their removal?
Make representations in writing (circulated to members or read out at GM)
has a right to be heard ie to speak in their defence at the GM, whether or not they are a shareholder
Bushell v Faith Clause
A Bushell v Faith clause in the articles of association may give a director, who is also a shareholder, weighted voting rights at a GM at which a s 168 CA 2006 resolution is proposed. This is likely to mean that shareholders are unable to pass an ordinary resolution to remove the director concerned.
A shareholders’ agreement may provide that the unanimous consent of all shareholders is required in order for a resolution to remove a director to be passed
- what is the effect of such a clause?
such a provision does not remove the statutory right of the majority shareholders to remove a director under s 168 CA 2006, as a company is bound to accept the vote of the shareholders even if this is in breach of the provisions of the shareholders’ agreement.
the resolution would still be valid, and the director would be removed from office. But the director would have a claim against the other shareholders for breach of the shareholders’ agreement
What is a derivative claim?
allows shareholders to bring a derivative claim where directors have breached their statutory duties
initiated by a member of a company, rather than by the company itself:
a) in respect of a cause of action vested in the company; and
b) seeking relief on behalf of the company.
Who brings an action for a derivative claim?
Shareholder on behalf of the company
When can a derivative claim be brought?
“… may be brought only in respect of a cause of action arising from an actual or proposed act or omission involving negligence, default, breach of duty or breach of trust by a director of the company.”
Against whom can a derivative claim be brought?
Director or another person (or both)
However a cause of action will only arise in respect of the actions or omissions of a director.
What is the process for a derivative claim?
Requirement for a court approval
1st stage - Permission of the court to continue a derivative claim
The court will consider whether the member is acting in good faith and whether the act or omission which gave rise to the cause of action would be likely to be ratified by the company.
Won’t allow permission if the person acts against promotion of success of the company
2nd stage - the court will consider the claim
The court will satisfy itself that the memer has no person interest in the matter (direct or indirect)
What is unfair prejudice claim?
allows a member to bring an action on the grounds that the company is being run in such a way that they have suffered unfair prejudice
Examples of unfair prejudice
the granting of excessive remuneration to directors;
directors’ dealing with associated persons; and
non-payment of dividends
Who sues for unfair prejudice?
Shareholders sue for themselves (unlike in derivative action where they sue on behalf of the company in respect of the company’s loss)
Grounds for claiming unfair prejudice
(a) that the company’s affairs are being or have been conducted in a manner that is unfairly prejudicial to the interests of members generally or of some part of its members (including at least that shareholder), or
(b) that an actual or proposed act or omission of the company (including an act or omission on its behalf) is or would be so prejudicial.
Can you claim unfair prejudice for legitimate expectation?
In small private companies legitimate expectation that they be involved in the management of the company, and the prevention of such involvement may equate to unfairly prejudicial conduct.
What is the most common remedy for unfair prejudice?
for the purchase of the petitioner’s shares by the wrongdoer(s)
The court has a discretion when valuing shares - it will not generally impose discounts on the value of shares
What should you do when you want to remove a director?
In order for the unhappy shareholders to ensure the resolution to remove a director is heard as soon as possible, they will submit a s 303 request requiring the directors to call a GM at the same time as sending their s 312 CA 2006 special notice to the board.
